House of Commons - International Development

Select Committee on International Development Eighth Report

4 Poverty Reduction and Poverty Reduction Strategies

38. Poverty Reduction Strategies (PRSs) are strategies which are produced and owned by the government of an aid-receiving country and set out what it intends to do to reduce poverty. PRSs provide the basis for all World Bank and IMF concessional lending and for debt relief under the enhanced Heavily Indebted Poor Countries (HIPC) Initiative. Furthermore, DFID provides aid on the basis of PRSs and the Departmental Report states: "Aid is provided in support of these Poverty Reduction Strategies and is conditional on governments staying on course with the reform agenda they have agreed with their citizens".[77] There is not precise blueprint for the production of a PRS. The process of production will reflect a country's circumstances and characteristics. However, a PRS should usually contain a description of the process of consultation with civil society, comprehensive poverty diagnostics (identifying the poor), clearly presented and costed priorities for macroeconomic, structural, and social policies and appropriate targets, indicators, and systems for monitoring and evaluating progress. International Financial Institutions carry out Joint Staff assessments of PRSs and the Boards of the World Bank and IMF then decide whether a PRS provides a sound basis on which to proceed with assistance and debt relief. PRSs have become an integral part of the development assistance system as most donors provide funding specifically to support PRSs.

39. Twenty-six countries now have a PRS and twenty-three have an interim PRS.[78] Sometimes an interim PRS is produced to avoid delays in receiving assistance. These have to include a stocktake of existing poverty reduction strategies and set out plans for development of a full PRS. Countries without a PRS are now likely to receive only humanitarian relief and capacity development to assist them in preparing a PRS. DFID is involved in capacity-building in countries without PRSs and in some cases has provided technical assistance in respect of policy formulation in PRSs.[79] DFID highlights that country offices provide capacity-building support to national and sectoral planning and budgeting activities linked to the PRSP.[80] The Poverty Reduction Strategy Trust Fund (PRSTF) exists to support capacity building in low income countries undertaking PRSs and is mainly funded by the Netherlands and Japan. DFID does not contribute to the PRSTF as it has: "decided that support for capacity building could best be delivered directly at country level, through our bilateral programmes".[81]

40. A frequently heard criticism of the PRS process concerns the lack of participation by civil society and business stakeholders in the drawing up of PRSs. As World Vision's evidence highlights, in most developing countries, "partner governments often do not have the mechanism nor the political will to adopt a more inclusive involvement of civil society or wider stakeholders in the [PRS] process".[82] Some governments appear to have started the PRSP process with little understanding of participation as a principle, nor expectations of it beyond satisfying the IFI's requirements[83]. Where there is participation, it may be politicised, and civil society groups invited to participate at the discretion of government.[84] DFID has emphasised that most of its country offices "engage with national PRS processes through support for official processes (Government participation) and through direct support for civil society".[85] An ODI paper assessing participation in the PRS process suggests "it is not clear that the potential of civil society participation has been adequately exploited" and identifies methods of improvement.[86] We would also add that parliamentary participation in the process has to date been slight and needs to be increased. It is essential that the PRS process does not merely become a box-ticking exercise for aid receiving countries. Genuine participation requires an early engagement with parliaments, civil society, and multi-stakeholder groups, even before a PRS is drafted.

41. The assessment of PRSs by the International Financial Institutions and the subsequent use of PRSs as the basis of all lending and assistance may be seen as excessively influencing the process of PRS production. Governments producing PRSs will surely have IFI assessment in mind when doing so. It is worrying that that PRSs, rather than being the country-owned strategies that they were intended to be, may instead become a wish list of the Washington Institutions. DFID has stressed that PRSs are not a mechanism for bringing about IFI-driven trade liberalisation or structural adjustment:

DFID and the IFIs are at pains to stress that PRSs are country-owned and that donors do not influence their content. However, this is clearly not the case, nor is it always desirable.

42. Donor emphasis on country ownership of PRSs is based on the belief that local knowledge and understanding will produce the most effective policies. We do not dispute the importance of local knowledge and of local ownership of PRSs, but the benefit of local ownership should not be automatically assumed. Examination of the added value brought by local ownership is important to ensure that a weak locally-owned policy is not automatically judged as superior to policy which has a proven track record elsewhere. In some cases it may be both sensible and legitimate for donors to seek to influence policy in recipient countries based on expertise and experience. In particular, it may be useful for donors to highlight the importance of areas crucial to poverty reduction, such as gender, that are often neglected in a PRS. In its response to written questions DFID has recognised, that there is a dialogue between donors and recipient countries but stressed that ultimately country ownership must be respected. We agree with the importance placed on country ownership of PRSs but think that donors should be more explicit about the influence they have over the content of PRSs. Furthermore, donors should explain how they seek to balance the need for country ownership and the need for good policy, wherever that policy originates.

43. DFID told us that it, along with other donors, has: "a continuous dialogue with development partners about the design, implementation and monitoring of their Poverty Reduction Strategies".[88] Current mechanisms for such dialogue seem to be ad hoc and informal. However, DFID has pioneered country-level Memoranda of Understanding (MoUs) with a small number of countries, including Ethiopia and Sierra Leone, "as a framework for shaping the overall medium and long-term relationship with a partner government".[89] The MoU approach is based on mutual accountability, with MoUs intended to set out the obligations of both donor and recipient. DFID aims to relate MoUs explicitly to the PRS or similar national process and highlight that MoUs: "are open and explicit about our conditionality and expectations" and "indicate mechanisms for reviewing progress on an annual basis".[90] We welcome the development of these frameworks for working with partner governments and the links with the other national processes DFID is operating. We would welcome further information and details on progress within next year's annual report.

44. DFID emphasised to us that: "Memoranda of Understanding are not principally a mechanism for setting out what DFID would like to see in Poverty Reduction Strategies although they do allow for a dialogue on issues which may not currently be well covered there".[91] While we support the principle of country ownership of PRSs, we consider that there are ways in which donor expertise and guidance could enhance PRSs and make them more effective mechanisms for reducing poverty. Countries preparing PRSs will inevitably be influenced by what they think donors, including IFIs, want. Donors should explicitly recognise the influence they exert of the content of PRSs and the donor-recipient dialogue on PRS content should be formalised, possibly using MoUs. This may be useful to countries preparing PRSs and would allow donors to identify important but sometimes neglected issues such as gender or trade capacity building. DFID have recognised that some areas are often neglected in PRSs and have, along with IFIs, considered the setting of standards for PRSs. But they report that countries with PRSs feel that imposition of global standards or guidelines would undermine country ownership.[92] Identifying examples of good practice are seen as a more useful aid to countries developing PRSs.

45. The role of donors in influencing policy should also be considered in relation to the targets that donors set for themselves. The Department sometimes sets indicators to measure progress against objectives over which it has little control. For example, the proportion of ODA spent on trade capacity building is an indicator of progress towards achieving MDG 8 (a global partnership for development), but in theory at least, it is a recipient country who decides on its spending priorities.[93] DFID needs to use realistic indicators, that reflect what its work can achieve, and measure progress towards meeting its objectives. As we stressed in our report last year, DFID should explicitly analyse the relationship between its need to achieve its own objectives, and its support for locally-owned development strategies.

46. Governments with PRSs are expected to produce Annual Progress Reports outlining progress in implementation and intentions for policy/programme reform. These are discussed at IMF and World Bank Boards as the basis of continued lending and assistance.[94] There is no fixed format for annual progress reports, in line with the principle of country ownership.[95] DFID has also informed us of an independent review being prepared by the World Bank which will assess overall progress in PRS implementation.[96] PRSs should also specify indicators that can be used to assess progress. However, DFID has highlighted that in many cases the lack of statistical capacity in a recipient country means that there is a lack of good quality and readily available data required to make an assessment.[97] DFID is involved in statistical capacity building projects in countries including Uganda, Malawi, Pakistan, Tanzania and Ghana. DFID have rightly stressed the importance of not creating an unnecessary burden on recipient countries through monitoring or reporting requirements.[98] A recent paper commissioned by DFID identifies some key principles for the development of PRS reporting and monitoring systems such as building on existing national and local institutions and linking in with other national policy and budget processes. We encourage DFID to push for adoption of reporting and monitoring systems along these lines so that it can better demonstrate the effectiveness of assistance provided in support of PRSs.